Drug prices have risen across the board for what industry sources claim is the depreciation of the rupee vis-a-vis the dollar subsequent to the authorities' decision to adopt a market-based exchange rate mechanism, as per the International Monetary Fund's prior condition for the 6 billion dollar Extended Fund Facility. This highlights a major problem with Pakistan's pharmaceutical industry in common with other local manufacturing units, including the auto sector: heavy reliance on imports, for finished products as well as raw materials (including capital machinery) whose domestic sale price is therefore intricately linked to the rupee/dollar parity.
What is disturbing is that in spite of major concessions extended by our governments, fiscal as well as monetary in the past, Pakistani industry's heavy reliance on imports has not diminished though in some cases the industry had pledged to a time-bound indigenization plan for its production cycle. The case of the auto sector comes to mind with local manufacturing units continuing to rely on their parent company abroad for the bulk of the car parts thereby violating its own pledges of indigenization though its downstream employment generation has been significant.
Many life-saving drugs are not produced in Pakistan, including expensive cancer and AIDS medication, while those that are produced rely heavily on imported raw materials. And to compound the problem for the industry the government's decision to ban all imports from India, from where the industry was procuring 65 percent of all raw material at a cost lower than can be procured from other countries, has also impacted negatively on medicine prices. The government would do well to begin to detail the pace of indigenization of production after consultations with the stakeholders and unlike in the auto sector, ensure that pledges made in this regard are adhered to by individual industrial units.
The second major source of concern with respect to industrial output in Pakistan has been its quality. In this instance, it is relevant to note that domestic output in some cases is not up to international standards. Cars manufactured in Pakistan may not pass the roadworthy test required in the West and in the case of medicines, too, there have been instances where the potency of a drug is not as is claimed on the packaging. Thus there is a need to ensure quality is adhered to.
In the case of the pharmaceutical sector, like with other manufacturing units, cost of inputs, particularly tariffs, has risen dramatically in recent months - a standard condition for an IMF loan being withdrawal of special concessions and ensuring full cost recovery of utilities. Unfortunately in Pakistan, this has implied mismanagement and poor performance of utility companies being paid for by their clients. The government must focus attention on improving governance particularly in the power sector to minimize the cost borne by consumers.
The system of granting licences for new medicines (as a consequence of research) is very slow which inhibits their use in the country. The government must facilitate the process through allowing automatic clearance of all those that have been cleared by US FDA.
To conclude, the government needs to engage with major industries to determine the pace of indigenization as well as provide time bound quantitative benchmarks for improving governance in the utility companies and undertake quality controls of the output.